Corporate vs. Government: The Top Transferable Best Practices

Tuesday June 21, 2016, 4:25-5:25pRoom 105

2016 Government Fleet Expo Annual Meeting

Steven Saltzgiver, MAOM• Manager, Mercury Associates• 37 years fleet management experience• Former Fleet VP, Coca-Cola & Republic Services, over

50,000 assets – Budgets’ over $1.2B• Former Fleet Director, States’ of Utah and Georgia,

Over 20,000 assets• Former Fleet Manager, City of West Jordan, Utah• Former Supervisor, Utah Transit Authority• Former “A” Technician, Utah Transit Authority• Honda Environmental Award, 2000• NCSFA Distinguished Service Award, 2009• Fleet Technology Expo “Fleet of the Year”, 2015

Introduction – Speaker Bio

Why Best Practices?

Key Best Practices

Key Best Fleet Practices Inventory

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Both focus on customer service as primary objective Corp focus EPS/Shareholder value – Sacrifice long term? Gov focus on Taxpayer/Elected Official accountability Corp short-term investment opportunities to save long-term costs Gov focuses more on short-term vs. long term Corp focused on competition Corp > sustainability focus – “Right thing to do” Waste in both Orgs. >6 Sigma and Lean Opportunity?

Key Drivers

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Safety is major focus for Corp litigation Corp >Risk outsourcing services vs. Gov more internal Corp >focus on mitigating accident costs Corp >employee accountability focus on driver behavior, asset

accident, abuse and misuse Corp >focus on driver behavior monitoring systems to prevent

potential litigation Corp > focus on Gov compliance & impact vs. Gov Corp >metric focus toward continuous improvement

Safety/Risk

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Corp focuses on long-term and short-term strategy Corp integrates strategic objectives end-to-end and top-to-bottomExamples:• Coca-Cola – 6 “Ps” People, Process, Productivity, Partners, Profit,

Planet• Republic Services – 5 “Rs” Respectful, Responsible, Reliable,

Resourceful, Relentless• RPM – Reliability, Productivity, Maintained• RACE – Reliable, Available, Cost-effective, EQ Utilization

Strategy

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Operations vs. Fleet animus can exist in both Corp >turnover. Elimination of Pension benefits? Corp >focus on revenue assets Corp >focus on centralized approach to leverage potential

synergies. (i.e., less a political decision) about the bottom line Corp focus is national (globally) versus local which impacts politics People politics exist in both organizations Corp reorganizes every three years Gov leadership change every 4 years. Employees drive execution

Organization

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Corp hyper-focus on budget numbers to drive profit Corp is more focused on quarter versus Gov annual focus Gov focused on balancing the budget Both never have enough capital to properly replace assets Both have short-term budget funds to repair versus replace Both capital constrained but Corp more flexible to provide capital Cross-subsidization happens in both orgs Corp focused on Process Improvement Teams Corp asset management focus

Financial

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Corp > focus on TCO vs. low bid Corp < focus on profitable remarketing and disposal Corp concerns about used assets purchased by competitors Gov > focus on disposal returns for all vehicles Corp > asset management focus end-to-end Gov > focus on cooperative purchasing/bidding Corp > focus on long term partnerships with suppliers

Asset Management

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Both focused on safety and reliability Corp > focus on outsource partners (core competency) Both focused on PM currency as primary metric Corp >focus on Predictive Maintenance (PdM) Gov > use of COTS FMIS. Corp > use of Financial system FMIS Both focused on metrics and benchmarking Corp less willing to benchmark with other businesses Corp > focus on internal shop efficiencies and productivity

Maintenance

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Corp >focus on pay and reward $ Gov >focus on accolades and praise Corp >ethic opportunities to error and compliance training required

to avoid ethic issues Corp >focus on individual employee accountability & succession

Planning (formal rating systems) Corp >focus on turnover, engagement and employee performance Gov vs Corp discipline/termination and “at-will” status

People

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Gov >focus on policy Corp >focus on TCO Corp more focused on warranty recovery and recalls Corp often execute purchases w/o formal bid processes Corp not always concerned about low price and perception vs.

long-term strategic relationship Corp/Gov seeing >Parts due to bad diagnosis increasing $ >Outsourcing becoming inevitable reality for Corp/Gov Tech productivity becoming >focus for Corp (SRTs) Corp/Gov use consultant services as needed

Process

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Corp adopts technology quicker - ROI Gov lags behind until proven becomes standard Corp opportunity to leverage COTS FMIS vs. Gov Corp stronger focus to let Finance drive Fleet $ Corp invests more in employee training and needed tools Corp invests in technology if productivity gains or savings proven Both becoming paralyzed by excess data available resulting in

unreliable analysis used for decision-making Corp leads technology but Gov adopts quicker once proven

Technology

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∗ Life Cycle reduction trend on horizon?∗ Telematics expansion and applicable uses∗ Greater “Big data” and benchmarking focus to find > opportunities∗ Driver and Tech shortages now epidemic ∗ Increased downtime due to complexity enlarging spares∗ > Maintenance costs due to complexity and < employee

productivity∗ Technician “War” competition – Fighting for quality-trained techs

Trucking Industry Trends

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Technology increasing operations cost and downtime Increased Truck Fire incidents CNG regulatory compliance Supplier relationship focus (Fewer = better) Battery life cycle concerns for EVs Truck options = increasing exponentially Outsourcing strategy – moving to external, how soon? Vehicle complexity is becoming a challenge for internal shops

Trucking Industry Trends

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Weighted Average Cost per Engine Hour (CPEH)

Post-Emission Pre-Emission Cost Curve

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Vehicle Complexity – Emissions & Compliance

Examples of emissions complexity:

System Part Description Pre-Emission

Post-Emission

Emissions/Exhaust Muffler vs. Diesel Particulate Filter Assembly 95$ 4,719$

After Treatment Diesel Particulate Filter Only -$ 2,258$ Turbo vs. Variable Geometry Turbo 967$ 3,294$ EGR cooler vs. no EGR cooler -$ 1,096$

Engine Fuel Injector E6 vs. MP7 106$ 695$ Cylinder Head E6 vs MP7 1,779$ 3,674$

Government emissions regulations and new engine technologies between 2007 and 2010 continue to elevate maintenance costs on trucks

On average a post-2007 emissions truck costs >25% higher per engine hour to maintain when a truck comes off warranty (two years after purchase)

Capital costs > 30% since 2007

Parts costs and total number replaced is expanding

Need to continue working to mitigate cost impact by training technicians on new technologies to lessen reliance on higher cost 3rd party repair vendors and downtime

Training! Training! Training!

Truck Age

Strategic focus – Team rowing in the same direction Talent/succession planning focus and evaluation process Benefit from thinking long term making decisions based on

positive ROI and IRR and not annual politics Rationale for sustainable vehicle use Investment in people engagement, retention, and training skills Making business decisions based on TCO More use of Process Improvement tools

Key Transferable BPs?

Future government mandates increasing complexity and impacting cost: Phase 2 fuel standards (2018) CSA compliance changes > FMCSA shutdowns Collision avoidance (coming) HOS Compliance (on hold until 2016) ELD Mandate ICC protection increasing ESC mandate (2017) Back up camera compliance (2018)

Industry Trends

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Focus opportunities for both? Cost impact studies due to increasing complexity and downtime Charge-back customer accountability for consumption of fleet expenses >Right-sizing and outsourcing optimization studies CSA compliance studies and aid FMCSA impacted fleets >PM, PdM, VEU, SRT, 5S, VMRS, Parts/Shop optimization studies Fleet management training/mentoring - new gen training studies Sustainability/fuel, Phase 2 compliance/asset modernization studies Gov mandate impact cost analysis on org productivity studies Telematics/FMIS optimization studies – Tech not fully leveraged Waste elimination. Six Sigma and Lean optimization studies

Summary

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Focus opportunities for both? Cost impact studies due to increasing complexity and downtime Charge-back customer accountability for consumption of fleet expenses >Right-sizing and outsourcing optimization studies CSA compliance studies and aid FMCSA impacted fleets >PM, PdM, VEU, SRT, 5S, VMRS, Parts/Shop optimization studies Fleet management training/mentoring - new gen training studies Sustainability/fuel, Phase 2 compliance/asset modernization studies Gov mandate impact cost analysis on org productivity studies Telematics/FMIS optimization studies – Tech not fully leveraged Waste elimination. Six Sigma and Lean optimization studies

Summary

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Bottom lineDifference is minimal

99% the same!

Steven W. SaltzgiverManager

Mercury Associates, Inc.www.mercury-assoc.com

ssaltzgiver@mercury-assoc.com

Questions?

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